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Regulatory Fog: The Informational Origins of Regulatory Persistence

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  • Patrick Warren
  • Tom Wilkening

Abstract

Compared with other types of policy, regulation is very persistent, even when inefficient. We propose an explanation for regulatory persistence based on regulatory fog,the phenomenon by which regulation obscures information about the e ects of deregulation. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the regulator's ability to observe the state of the world. Compared to the full-information benchmark, regulation is highly persistent, often lasting inde nitely. The regulatory fog e ect is robust to a broad range of partially informative policies and can be quite detrimental to social welfare.

Suggested Citation

  • Patrick Warren & Tom Wilkening, 2010. "Regulatory Fog: The Informational Origins of Regulatory Persistence," Department of Economics - Working Papers Series 1113, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1113
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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